BP to showcase capabilities in low-carbon fuels at 2012 London Olympics. BP Biofuels chief Phil New outlines the BP’s path towards “getting biofuels right”.
“6 percent of the entire BP workforce is now working in biofuels,” noted BP Biofuels chief Phil New, in describing the company’s commitment to what he has termed for a long time, “advantaged biofuels,” as opposed to “advanced biofuels”.
That’s 4,000 people in all. That’s 30-100 times the payroll of some of the other companies that sit in the upper regions of the 50 Hottest Companies in Bioenergy. Demonstrating that BP is serious in its biofuels ambitions – but going its own way.
Three models you don’t hear from BP Biofuels: “licensing”, “JV” or “capital-light based on strategic partnerships.” They’ve gone vertically integrated with a handful of large-scale projects, just as so many others have built out fleets of projects with multiple partners, or massive JVs, or gone the licensing route.
“Our goal,” comments New, “is to be a material player. Our pathway includes both development of our own assets as well as acquisition, although acquisition will not be at any price, or any asset. We want to develop at the right pace, and solidify our culture, and we want to own and operate.
“Getting biofuels right, doing biofuels well, means genuine savings in carbon, and they have got to be produced sustainably,” New noted.
The other oil majors, and BP
The major traditional oil & gas companies have been increasingly visible in the sector in the past two years – Shell with its massive $8 billion Raizen joint venture with Cosan; Total putting large bets and capital behind Amyris and Gevo; Valero assembling almost a billion gallons of ethanol capacity and investing in Solix, Enerkem, Terrabon and Mascoma; Chevron supporting Solazyme, LS9 and its Catchlight Energy JV with Weyerhaeuser; ConocoPhillips investing in Cool Planet; Petronas and Indian Oil partnering with LanzaTech; massive plans by Sinopec and PetroChina for aviation biofuels; ambitious goals set by Petrobras for biofuels expansion in Brazil.
But at the front of the queue for a long time has been BP Biofuels, which has not always assumed a high profile depute investing $2 billion into the sector since 2006, but will be markedly in evidence at the London Olympics. You’ll see a decked-out advanced fuels station, and cars moving around the Olympic Village, using ethanol, biobutanol and biodiesel.
Now, we want to make sure we distinguish this operating unit from BP Technology Ventures, which over the years has invested in Qteros and Cool Planet. So what exactly is the unit and where is it going?
Commencing in the mid-2000s, the first phase for BP was getting actively involved in the sector, rather than acting passively as an obligated blender.
“It was important for us to begin to understand agricultural risk,” commented New. “During this phase we entered into joint ventures, such as Tropical Bioenergia, as a part of understanding that risk. The next phase, we began to understand that we could be an owner-operator, as long as we expanded at the right pace.”
Expansion into Brazil
Expand they did – three assets in Goias and Minas Gerais states in Brazil. They commenced in 2008 with a 50% stake in Goias-based Tropical BioEnergia SA, a joint venture with LDC Bioenergia and the Maeda Group. In 2011, BP purchased the remaining 50% of the shares in the company, and indicated that it will double capacity to five million tonnes of crushed cane by the end of 2014, and also build another mill in the region for an additional five million tonnes.
In 2011, BP announced that the acquisition of majority control of the Brazilian ethanol producer Companhia Nacional de Açúcar e Álcool (CNAA),and now operates two sugar cane ethanol mills formerly operated by CNAA in Itumbiara, Goiás and Ituiutaba, Minas Gerais.
Note the strategic nature of the investment. In addition to producing ethanol fuel for the strong ethanol market in Brazil, the company now controls a vast tonnage of bagasse, suitable for cellulosic conversion when those technologies become economically feasible, and the plants form a suitable base for adding biobutanol capacity, or sugarcane-based diesel fuels, as those technologies advance to commercial feasibility
Expanding in the UK
Together with DuPont and British Sugar, BP is building a $400 million commercial-scale ethanol plant in the UK on an existing BP site at Hull, operating under the name Vivergo Fuels, with capacity for 420 million liters of ethanol and 500,000 tonnes of animal feed annually, and potential to be retrofitted to produce the advanced biofuel biobutanol in future.
Also in the UK, BP is partnered working DuPont to develop and market bio-based isobutanol – with a new technology demonstration facility capable of producing 20,000 liters annually currently under construction.
Expanding cellulosic ethanol in the US
In the US, BP acquired Verenium Corporation’s lignocellulosic biofuels assets for $98.3 million in 2010. As a result of the acquisition, BP became the sole owner of Vercipia Biofuels that will build a 36 million gallon project in Florida and is looking at a 72 million gallon project for the Louisiana/Texas area by 2017.
What’s the latest on the Highlands Project. “The biology is there, the agronomy is there” said New, “right now our focus is engineering, engineering, engineering.” New said that the opening date for the plant, which was generally thought to be 2013, may slip to 2014.
In August 2009, BP announced a joint development agreement with Martek to convert sugars into biodiesel. This technology offers an alternative to the current process used to produce biodiesels from vegetable oils. We believe sugar-to-diesel technology has the potential to deliver economic, sustainable and scaleable biodiesel supplies.
Butamax – the BP/Dupont JV for biobutanol – and Gevo are current slugging it out over who exactly owns what, IP-wise, in bio-based isobutanol. When that is sorted out, the Digest expects a heavy percentage, between 20 and 30 percent, of US-based ethanol capacity to convert to biobutanol as the US ethanol fleet develops workarounds for the E10 blend wall.
Butamax’s strategy. Unlike BP, Butamax is focused on licensing rather than an owner-operator strategy. We see Butamax as, essentially, a supplier of technology to BP Biofuels, which may convert capacity over to isobutanol in Brazil, or elsewhere, just as it may add capacity in Brazil or the US to produce biodiesel from sugarcane instead of ethanol.
Meeting the feedstock challenge
Aside from owning a large number of sugarcane assets in Brazil that came with the Tropical Bioenergia investment, BP Biofuels has two primary partnerships in feedstock: an agreement with Lykes Brothers to provide energy grasses for conversion to cellulosic ethanol at the 36 million gallon Highlands County project, and an investment in Mendel Biotechnologies to develop miscanthus as a feedstock for alternative fuels.
Miscanthus in 2017 at the second cellulosic ethanol facility? “Miscanthus isn’t really about plant #1 or #2 for us, it’s more about phase two. In phase one, we are focusing on energy canes, and napiergrass (elephant grass).
The Bottom Line
Expect BP to have:
1.4 billion liters of capacity in Brazil when its current assets are full developed
420 million liters in the UK this year
410 million liters of capacity in the US by 2017
Total? 2.27 billion liters or capacity by 2017, or 714 million US gallons, excluding additional acquisitions. Reaching those goals, the company would be expected to be the top producer of cellulosic ethanol as well as in the top three for advanced biofuels, with only Raizen and Petrobras in the race to exceed BP Biofuels’s overall advanced biofuels capacity.
Our expectation? More acquisitions. The company’s technology in cellulosic ethanol, biobutanol and biodiesel is going to give it too many ways to add value to existing capacity in Brazil, and with some Brazilian operators short of capital for expansion, the field will be ripe with opportunity.